More Complex Option Strategies
Multiple options are so often combined together that certain strategies have earned their own nicknames. If nothing else, discussing these positions gives you good exercises for graphing more complex payoff diagrams! The two basic kinds are spreads, which consist of long and short options of the same type (call or put), and combinations, which consist [...]
Option Payoffs at Expiration
It is easiest to understand an option via its payoff table and payoff diagram. You have already seen these in the house and capital structure contexts. A payoff diagram shows the value of the option as a function of the underlying base asset on its final moment just before expiration. The characteristic of any option’s [...]
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